The Russian economy (catch all)

[OUTLAW 09]

Russian production isn't falling because of a shortage of reserves, it's falling because of a shortage of investment. In the short run the impact is the same, but a deficit of investment can be corrected, while a deficit of reserves cannot.

Russia suffers from a syndrome common to oil producers... one might call it the Venezuela disease. The problem arrives when the government begins to depend on energy revenue, rather that a diversified tax system, to fund its operations. That typically leads to a place where the government ends up absorbing money that the energy industry needs to re-invest in operations in order to sustain its productivity. That inevitably leads to lower production, and to the government taking an ever higher percentage of falling revenue, leaving less and less money to reinvest. Venezuela looks to be entering the final stages of that death spiral; Russia has a way to go.

It is worth noting that Russia could balance its budget with oil at $90. They could balance it with oil at $80. BUT... they would have to raise taxes, quite substantially. They have room to do that: Russian income tax is a flat 13% regardless of income, and other taxes are similarly low relative to developed countries. It would not be a popular move, though, especially dring a recession. That's the danger you get into when you rely on oil money and let the people get used to low taxes.

It will be interesting to see what they decide to do.

Dayuhan---here is the same problem again---taken from the source you do not like but sometimes actually accurate the web.

Here is an unusual admission from a Russian in the know concerning oil:

Lukoil's Alekperov unusually open about hit to oil industry from sanctions - says 25% of oil from fracking - Interfax

This goes to the loss in production by 2020---heavy fracking in the older fields in needed as they are losing both in volumes and production rates.

25% is a heavy percentage--nowhere close to that in say older US fields.

That is why this last round of sanctions was bad for Russia---it hit the fracking side of both gas and oil thus Russia in the long haul cannot even keep that percentage stable. It hit also the US oil/gas services companies Russia is heavily dependent on for their fracking and artic drilling--Russia simply does not have that capacity inhouse to replace them.

They will be hurting production wise in about 9 months if these particular sanctions stay in place as it seems they will---there was also a side comment concerning OPEC--they sense that OPEC is keeping their production run rates on sour at record highs---almost contributing to the falling sour crude prices..

[OUTLAW 09]

And sanctions are not hurting the Russian oil/gas industry?---literally an flood of negative Interfax press releases today on the Russian oil industry.

Ouch...it seems the Russian oil industry is screaming for Russian CB support.. almost a panic tone in the releases...from Interfax today

18:48
PRODUCING OWN OIL INDUSTRY EQUIPMENT WON'T RESOLVE BAN ON IMPORTS QUICKLY - MEDVEDEV

18:46
COLOSSAL MEANS NEEDED TO FULLY REVIVE PRODUCTION OF EQUIPMENT TO PRODUCE OIL IN RUSSIA - ALEKPEROV

18:46
TAX MANEUVER TO LEAD TO INCREASED TAX BURDEN ON OIL INDUSTRY - ALEKPEROV

18:45
LUKOIL NOT EXPECTING MONEY FROM ABROAD IN MEDIUM TERM, HAS TO DEPEND ENTIRELY ON ITSELF - ALEKPEROV

18:45
EFFORTS MUST BE MOBILIZED IMMEDIATELY TO PRODUCE HYDROFRACTURING EQUIPMENT IN RUSSIA - ALEKPEROV

18:43
LUKOIL'S ALEKPEROV SAYS 25% OF OIL PRODUCED BY FRACKING, BAN ON EQUIPMENT IMPORTS FOR THIS COULD HURT OIL INDUSTRY

[Firn]

In short so far it seems that the Kremlin is protecting it's budget while letting the economy suffer. We discussed the origins of that logic before.

I think the Swedish paper is pretty good and has a nice picture about the dangers of Russian rent-seeking. If I find some time I may read Resource Rents and Economic Growth, 'A report for the Russian Presidential Academy of National Economy and Public Administration (RANEPA)'. I doubt that it was widely discussed in the Kremlin.

The durability of networked authoritarianism is far shorter and more relevant at the moment. The author is now back from Moscow and the director of the Russian institute at the King's College, London. The graph at page three is rather neat...

This memo takes a step back from the passions of the November 2011 parliamentary and March 2012 presidential elections and the protests that surrounded them. It argues that the consolidation of the underlying Russian political economy over the past 20 years has given rise to a system of rent-seeking and arbitration pursued successfully at various levels and supported by a robust network of interlocking interests. This ”networked authoritarianism” supports the status quo and militates powerfully against significant reform. It does so, I argue, at the cost of increasing inefficiencies and social friction, raising the possibility of catastrophic change in the future. This memo will explore the structure of the system, the pressures and constituencies for change, and the limits of reform.

I fear that that catastrophic change might have already taken place in the propaganda fog of Putin's new war.

[Firn]

After my link to that fine paper about the durability of networked authoritarianism around Putin the NYT has an excellent piece of reporting about how a private bank fuels the fortunes of his inner circle. Some has already be known, of course, but it adds new insights and puts all together. The graph about it's rise in assets is quite stunning...

He had arrived in Moscow as a midlevel apparatchik in ill-fitting suits, had ascended to power as a thoroughly unexpected president and won his first presidential election in 2000 on the crest of war to suppress separatists in Chechnya. By 2004, Mr. Putin had become the paramount figure in Russia, winning a second term with 72 percent of the vote, in a race tainted by allegations of strong-arm tactics and vote rigging. Yet Mr. Putin probably would have won a fair election easily, too. The Russian economy, buoyed by high oil prices, was booming, creating huge fortunes and also lifting the middle class. The long era of post-Soviet gloom seemed done.

Not many people yet understood that in the middle of Russia’s prosperity, the men in the tight circle close to Mr. Putin were becoming fabulously wealthy, and increasingly powerful, in what critics now consider a case study in legalized kleptocracy.

Sadly for many Russians the shock will all be greater if the economy goes where it seems to be headed in the mid run...

[kaur]

Putin's friend Arkady Rotenberg has problems in Italy due to sanctions.

http://www.themoscowtimes.com/mobile...re/507663.html

Navalny has studied his fortune there. In Russian, but a lot of pics.

https://navalny.com/p/3845/

[OUTLAW 09]

And.....here come the overall price increases which the Russian "common man/woman" on the street will definitely notice.

More from that new Econ Min forecast from last week: food prices expected to jump 12-13% this year

IMO---they will eventually come in between 15-225 more as the long term food delivery contracts run out and Russia has to look for more suppliers from overseas adding to the shipping costs and reduced quality.

http://vedomosti.ru/~h1e

[OUTLAW 09]

And.....the Rubel slide continues ever downwards.

It seems that the super micro and marco economist Putin does not seem to see the connection between his actions in the Ukraine, the sanctions that he himself stated publicly they could survive with ease and the resulting disaster coming at his economy in the next six months as the winter hits and overall Russian economics slows down due to weather.

Seems the attempted Russian FM Reset 2.0 was an attempt to row against the current and get back to business as usual.

Ruble slides (again), inches toward central bank intervention levels. http://www.bloomberg.com/news/2014-0...ion-level.html